PE investments in real estate peaked in 2015

Published Date : 11/02/2016

As per global real estate consultancy, Cushman & Wakefield’s latest report on Private Equity investments in Real Estate (PERE) total inflows in the sector peaked during 2015 with INR 25,680 crores / INR 256.8 billion (bn) (USD 4.0 bn). The PE investments were considerably higher by 72% from the previous year and highest since 2008. The substantial increase in PERE investments during the year was led by a three-fold jump in investments made in the residential sector. The total number of deals also witnessed an increase during 2015 to 90 from 75 in the previous year. This was the highest number of deals closed in a year since 2008. In addition, the average deal size too increased and was noted at INR 2.9 bn (USD 44.0 mn), an increase of 43% on year-on-year basis.

The residential sector attracted the highest share of investments during the year with over 70% share in total investment activity, followed by the commercial office sector, which garnered 21% share. The total value of investments in the residential sector was noted at INR 18,070 crores / INR 180.7 bn (USD 2.8 bn). PE funds continue to make majority of the investments in the residential sector at the project level. The investments in the residential sector has come at a time when residential sales have been sluggish for over past two years, leading to burgeoning inventory levels. The residential sales are expected to see green shoots in 2016, owing to falling interest rates regime on home loans and rising income levels especially if the ‘Seventh Pay Commission’ gets implemented.

The total investment in commercial office assets was recorded at INR 5,420 crores / INR 54.2 bn (USD 845.0 bn), a decline of 28% from record high investments witnessed in the previous year. Interestingly the entire investments in office sector during 2015 were made in leased assets. Nearly one-third (31%) of the total investments made in commercial office assets during 2015 were concentrated in Mumbai. Chennai followed Mumbai with second highest share (25%) and surprisingly has outpaced other preferred markets like Delhi-NCR and Bengaluru, primarily owing to one large deal.

Commenting on the report, Sanjay Dutt, Managing Director, India, Cushman & Wakefield said,“The Indian economy is expected to attract higher foreign investments, owing to improved macro-economic conditions (higher GDP growth, controlled twin deficits and inflation) which is the result of an enabling policy environment created by the central government in co-ordination with the RBI through structural reforms over the past 18 months. This is reflected in the way PE funds have showed their renewed optimism and confidence in Indian real estate sector by making record investments during 2015, especially in the residential sector despite sluggish sales and piling inventory levels across cities. Although SPV level deals by way of structured debt has been the preferred route adopted by majority of the PE funds to make investments, entity level deals too have seen healthy pick-up both in terms of deals and investment volume."

Sanjay further continued, “However, global funds have been selective and have invested through this route only with companies which have good credentials and a proven track record. The trend of higher investments through SPV level deals is likely to continue going forward too in 2016 and overall investments are likely to increase owing to growing funding needs of developers, rising optimism in Indian economy and new set of investors such as global financial institutions who have started exploring opportunities to reap better returns by investing in Indian real estate sector.”

Mumbai commands over 30% of total PERE investment in 2015

Mumbai attracted the highest share (34%) of total investment volume in 2015 with investments of INR 8,830 crores / INR 88.3 bn (USD 1.4 bn), nearly three times (2.6 times) higher than the previous year. This was followed by Delhi-NCR which garnered 23% share with investments of INR 5,880 crores / INR 58.8 bn (USD 0.9 bn). Bengaluru attracted third highest share (16.7%) of total investments during 2015 with inflows of INR 4,280 crore / INR 42.8 bn (USD 663.0 mn). While investments in Delhi-NCR increased by 4% compared to previous year, the same in Mumbai and Bengaluru have increased significantly by nearly 2.6 and 1.4 times respectively.